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Published: March 22, 2024

How to Generate Passive Income Through Commercial Properties

Commercial Properties

The idea of earning extra Money without having to work extra can be very appealing. It also adds to Financial Freedom and Independence. Unlike the conventional means of a 9-5 job, there is an extra way to earn the ROI from your own savings, with long term investments and lesser risk.

In addition to the traditional model of a standard 9-5 Employment Regimen, the concept of Passive Monetary Gains is intrinsically enticing. It not only contributes to Financial Freedom but also augments one's Financial Portfolio. While there are many ways to generate Passive Income, Investments in Commercial Real Estate emerge as a Financially Rewarding option. In this blog, we, Moneytree Realty Services Private Limited, will help you explore how to make Passive Income through Commercial Properties.

A broad range of Real Estate assets are included in Commercial Properties, such as Office Buildings, Retail Establishments, Industrial Warehouses and Multifamily Residential Complexes. Commercial Properties are meant to be used for business reasons, as opposed to Residential Properties, which are primarily used as homes. Their Earning Potential and Value Offers are shaped by this basic difference.

What is Passive Income through Commercial Properties?

Before diving into the strategies of generating Passive Income, it is vital to understand what it really means. Passive Income, in general, means making money while you sleep. When talking about Real Estate Passive Income, it simply means the Income that you earn from a Rental Property or other Real Estate Investment without having to actively work on it. This is made feasible by the fact that you are receiving Rent or Appreciation Income and you are not required to actively participate in the day-to-day operation of the Property.

Having said that, here are five ways, how to generate Passive Income through Commercial Properties:

1.Crowdfunding

Crowdfunding is a way of raising small amounts of money from a large number of individuals to Finance Projects and Businesses and it is generally practised via online modes. Crowdfunding is popular among Startups and Small Businesses and is also helpful in Global Expansion and Cultural Exchange. Online fundraising has become very popular in the modern days. Similar to REIT Investments, Investors can contribute as little as they want to a large project by pooling their Funds with those of Other Investors. Consequently, the Investors get the advantages of both the Property's Long-term Appreciation and Cash Flow.

2. Rental Income

Commercial Properties are said to have Passive Income potential because of their Business inclined approach. Under it, there are an array of Properties that yield Profits, for instance Multifamily Complexes and Offices. Such Properties can be used to generate Rental Income through Leases and Rents. Some of the leading Commercial properties are- Paras Avenue Sector-129, M3M The Cullinan, M3M The Line, Sikka Mall of Noida, Elan The Epic, Elan The Mark, etc which have rental income potential and come under this category. Generally speaking, Commercial Leases are Long-term than Residential Leases and offer a steady flow of Rental Revenue. Furthermore, companies value stability above everything else, which makes them dependable renters.

3. Mutual Funds and REITs

As compared to Real Estate Ownership and more Liquid Investment, Real Estate Investment Trusts (REITs) and Real Estate Mutual Funds offer the opportunity of diversifying your Portfolio and get Passive Income benefits. These means also provide Cost-effective Ways for Individual Investors to participate in different Real Estate Markets.

For those who do not want to take ownership and not be involved in the day-to-day responsibilities, REITs and Real Estate Mutual Funds are a Lucrative form of Passive Income. Finding a Mutual Fund track record that inspires and gives confidence about Potential Future Returns is not difficult. Furthermore, experienced professionals and economists in the Commercial Real Estate industry typically oversee Mutual Funds. Hence, you can profit handsomely from it.

4. Long-term Leases and Triple Net Lease Agreements

Long-term Lease Agreements with Tenants reduce the danger of early vacancy and provide a steady flow of Revenue. To maximise Profits, you can negotiate advantageous Lease conditions, such as provisions for Maintenance Obligations and Rent Escalation Clauses. This also leads to a longer duration of generating Passive Income.

Under Long-term Leases, Triple Net Lease Agreements (NNN Agreements) are most popular because they cover a wide range of expenses of a Property. Additionally, tenants under a Triple Net Lease are also in charge of the Upkeep, Insurance and Property taxes. NNN leases are appealing to Passive Investors looking for hassle-free Income since they shift operational responsibilities to tenants.

5. House Flipping and Upselling

House Flipping is very similar to Real Estate Trading. Using this approach, you can profitably acquire and sell homes. For instance, you can purchase a Property, make repairs, renovations, beautify it and then sell it for more money, profiting from the sale as a whole.

Renting a Property is not the same as House Flipping because in the latter, Real Estate Property is not purchased to be held. You purchase it with the intention of selling it quickly and for a Higher Price. Income through House Flipping comes with its challenges as well. In fact, it is only recommended to those who have a large network in this industry and also have a good grasp on the Market Trends.

6. Commercial Plots

Using Commercial Plots to generate Passive Income requires a Calculated Strategy. First and foremost, in order to find Profitable Areas with Lucrative Demand and Development Potential require careful consideration and due diligence. Leasing an Attractive Commercial Plot guarantees a Consistent Flow of Rental Revenue. In fact, the plot’s outlook also reflects its value and can be increased or decreased accordingly as per Infrastructure Upgrades or Property Development for Capital Appreciation and Rental Return along with Location Advantages.

Considerations and Risks

As much as a Real Estate Industry is Profitable on the outside, it is equally tricky to generate Passive Income from it. There are many factors that make this process tedious such as Market Upheaval and Inflation, Vacant Lots, Credit Risk, Legal Obligations and much more. Economic cycles and crises can affect the value of Commercial Properties. Similarly, finding a suitable renter and tenant turnover can also be a huge liability for a Commercial project. It can further lead to reduced Investment Returns and cause Cash Flow Problems. Therefore, certain developers keep it easy for investors where they offer pre-leasing guarantee in some of their projects where the investors don't have to rush to look for an authorised tenant and legal documents. Some of the leading commercial projects are Paras Avenue Sector-129, M3M The Cullinan, M3M The Line, Sikka Mall of Noida, Elan The Epic, Elan The Mark, etc Sometimes, they offer you a choice to give them leasing rights and give you guaranteed lease or to take the leasing right to yourself or use it personally.

Investing in the Indian Market means staying top of all the Legal Compliances with respect to Property laws. With the change in Government or the allocation of the New Budget can alter the terms of law in the particular region or the whole country leading to disrupted Revenue. Hence, it is vital to keep up with Local Construction Standards, Zoning Laws and Lease Laws to guarantee compliance and steer clear of expensive fines or legal action.

Conclusion

Selecting the best option for your Passive Income through Commercial Properties might be challenging with so many options available, as discussed above. You can get in touch with Moneytree Realty Services Private Limited, a Real Estate Advisory Industry Leader of India to simplify things. We will assist you in selecting the best Real Estate Income Strategy tailored especially for your situation.

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